EXPORT IMPORT DATA

Date : 05-Oct-2017
Subject : Leather and Leather Footwear Export Facing Massive Challenges
Leather and leather footwear export has been facing significant hurdles due to a challenging internal as well as external environment. Demand has been impacted due to the weak consumer sentiment in the European Union (EU - the biggest destination of India’s footwear exports) and a significant drop in the value of the British Pound (GBP) following the vote on referendum to exit the European Union, according to an ICRABSE 0.80 % report.
 
The sector is also facing headwinds due to appreciation in the value of the rupee against major currencies and recent regulatory restrictions placed on slaughter of animals and on leather tanneries, impacting raw material availability. Because of these factors, the export figures show a decline for two consecutive years, by ~9% in FY2016 and ~5% in FY2017. ICRA expects similar trends to continue in the near term which should impact the earnings of export focused leather footwear players.
 
On the domestic front, whilst the Indian footwear industry has historically recorded a healthy growth driven by increasing footwear demand and Average Selling Price (ASP), growth has slowed in FY2016 and FY2017 due to moderation in consumer sentiments. Additionally, the demonetisation drive in November 2016 also had an impact on consumer demand for footwear during FY2017.
 
The revenues of export-focused footwear players (these are mainly involved in leather products) in ICRA’s sample set declined by 2% in FY2017 while the revenues of players focused on the domestic market (involved in leather as well as non-leather products) saw a growth of 3% in FY2017. Aggregate operating profitability margin of the entities focused on exports has declined, from 14.1% in FY2016 to 12.0% in FY2017, while the aggregate operating profitability margin of companies focused on the domestic market has declined modestly from 12.2% to 11.9% during this period.
 
The credit risk profile of the exporting companies is relatively weak and it deteriorated marginally in FY2017. On the other hand, the credit risk profile of footwear companies focusing on the domestic market is relatively strong and has further improved in FY2017 on the back of higher revenues and OPBIDTA. For the sample as a whole, the aggregate credit risk profile has improved due to higher weight of players focused on the domestic market.
 
According to Mr. Shubham Jain, Vice-President and Sector-Head, Corporate Ratings, ICRA, “Though the players focused on leather products and export markets are likely to face headwinds due to combination of internal and external factors and may see pressure on revenues; the credit risk profile is likely to remain comfortable on account of limited leverage and lower expected capex. On the other hand, the revenue of those entities in ICRA’s sample which are focused on domestic market is likely to see healthy improvement, once the impact of demonetisation and GST wanes out, and these players are likely to report better credit metrics.”
 
Notwithstanding the recent moderation in growth, overall, the outlook on the industry is stable. Currently, India’s per capita consumption is 1.6 pairs per person as opposed to 6 pairs per person in developed economies and as the economy develops, there is significant growth potential for the domestic demand to expand, due to the changing consumer preferences, growing middle class, increase in working class population, and higher disposable income.
 
 
 
Soures : economictimes.indiatimes.com

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